The new inflation figures for the UK were released this morning. They were a little lower than expected but this has, surprisingly, had only a negligible effect on sterling. So far, at least.
The actual drop in inflation was large: down from 4% in the year to January to 3.4% in the year to February, and the lowest since September 2021. The fall was especially notable in food inflation, which had been stable for several months but fell to 5%. However, the drop was close to what the markets had been predicting so was effectively priced in.
Nevertheless, chancellor Jeremy Hunt said that the drop opened the door to lower interest rates.
However, elsewhere in the business news you can get a glimpse of why the markets may be unimpressed, with an apparently “fiery” meeting with the entrepreneur James Dyson and the chancellor at 11 Downing Street where the outspoken inventor railed against the weak economic ambition of British political leaders.
What’s all this got to do with exchange rates? Simply that while the markets may rise and fall daily in response to such matters as inflation and interest rates, the overall direction of travel for “UK Plc” is also important for the value of the pound.
The interest rate decision from the Bank of England is tomorrow, and the US Federal Reserve’s is later today. There are also flash readings for the Purchasing Manager’s Index (PMI) tomorrow which could potentially move the markets.
While no change in interest rates is expected and has been widely signposted, economics always has the capacity to surprise and if you are exposed to “currency risk” – in other words, if a sharp change in exchange rates either way would cost you money – today is the day to call your account manager on 020 7898 0541 and discuss fixing your exchange rate for the year ahead.
If not, you simply will have no idea what your overseas property, pension or investments are valued at from day to day.
